Correlation Between Southwest Airlines and ISS A/S

Can any of the company-specific risk be diversified away by investing in both Southwest Airlines and ISS A/S at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Southwest Airlines and ISS A/S into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Southwest Airlines and ISS AS, you can compare the effects of market volatilities on Southwest Airlines and ISS A/S and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Southwest Airlines with a short position of ISS A/S. Check out your portfolio center. Please also check ongoing floating volatility patterns of Southwest Airlines and ISS A/S.

Diversification Opportunities for Southwest Airlines and ISS A/S

-0.21

Correlation Coefficient

Southwest Airlines  ISS A/S

Very good diversification

The 3 months correlation between Southwest and ISS is -0.21. Overlapping area represents the amount of risk that can be diversified away by holding Southwest Airlines and ISS AS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ISS A/S and Southwest Airlines is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Southwest Airlines are associated (or correlated) with ISS A/S. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ISS A/S has no effect on the direction of Southwest Airlines i.e., Southwest Airlines and ISS A/S go up and down completely randomly.

Pair Corralation between Southwest Airlines and ISS A/S

Considering the 90-day investment horizon Southwest Airlines is expected to generate 17.84 times less return on investment than ISS A/S. But when comparing it to its historical volatility, Southwest Airlines is 2.02 times less risky than ISS A/S. It trades about 0.01 of its potential returns per unit of risk. ISS AS is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  1,999  in ISS AS on December 19, 2024 and sell it today you would earn a total of  321.00  from holding ISS AS or generate 16.06% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	93.65%
Values	Daily Returns

Southwest Airlines  vs.  ISS AS

Southwest Airlines

Risk-Adjusted Performance

Very Weak

Over the last 90 days Southwest Airlines has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Southwest Airlines is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

ISS A/S

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in ISS AS are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly unfluctuating technical and fundamental indicators, ISS A/S reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Southwest Airlines and ISS A/S

The main advantage of trading using opposite Southwest Airlines and ISS A/S positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Southwest Airlines position performs unexpectedly, ISS A/S can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in ISS A/S will offset losses from the drop in ISS A/S's long position.

The idea behind Southwest Airlines and ISS AS pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.